Auditor-general has queries with Denel

JOHANNESBURG - Denel, the controversy-prone state-owned arms manufacturer, was yesterday accused of tabling a flawed audit report by the auditor-general (A-G), while auditing firm, SizweNtsalubaGobodo (SNG), had the quality of its work questioned after it initially gave Denel a clean audit, despite lack of supporting evidence.

This was revealed in a letter presented to Parliament by the A-G’s office when it presented the audit outcomes of embattled state-owned companies under the fold of the Department of Public Enterprises.

In the letter, the A-G Kimi Makwetu said SNG failed to properly account for irregular expenditure in its report of Denel’s financials and that legislators should not rely on the financial report tabled by Denel.

“On August 18, 2017, at a meeting with SNG, we noted that Denel’s clean audit opinion was not supported by evidence. It was established at that meeting that SNG’s interpretation of the criteria to evaluate irregular expenditure might have been incorrect.“We suggested that SNG reconsider their opinion which they duly did. This led to the audit report being amended. An amended audit report was sent to Denel management for consideration. Denel resisted the amended report and went on to table the initial report which is incorrect,” wrote Makwetu.

Pam Malinda, a Denel spokesperson, said unless there was a material event that occurred during the audit that was not disclosed to SNG and became evident subsequent to the signing of the audit report, there was no basis for the proposed change to the report.

Audit opinion

“We engaged SNG with the view to understand what material information subsequently came to light which was not made available during the audit that has led them to amend their audit opinion and up to now we have not been furnished with that response,” Malinda said.

Former finance minister Pravin Gordhan, who sits on the portfolio committee, charged at SNG saying Denel’s clean audit opinion came from SNG and what had landed on the A-G’s desk was a final audit opinion.

Aaron Mthimunye, the managing director of assurance at SNG, defended the firm saying it had already jumped on the material non-compliance of the audit report before the A-G’s letter of notification. “We brought the issue of irregular expenditure to the attention of Denel’s senior management before its annual general meeting, but there was considerable resistance from Denel’s chairperson and chief financial officer to release the adjusted audit report.”

However, his assertions failed to convince some legislators.

MP Natasha Mazzone charged at SNG saying it was concerning that SNG had initially provided Denel with a clean audit in the absence of evidence considering that the firm has also done financial audits on Transnet and Eskom.

“Given the fallout from the KPMG scandal and credibility concerns with the audit profession in general, we trust that the A-G needs will go over the audit outcomes of Eskom and Transnet with a fine-toothcomb to check for similar errors,” Mazzone said.

Meanwhile, Public Enterprises Minister Lynne Brown told legislators that the disciplinary processes against suspended Eskom executives, Matshela Koko and Anoj Singh and other suspended managers were expected to be concluded before the end of next month. Brown said she hoped to appoint the power utility’s new board next month.

Annual report

Brown, who together with the department’s director-general was presenting the department’s annual report before parliaments Public Enterprises Committee said Eskom was on the path of a stable balance sheet.

“I intend to arrange an Eskom special general meeting in November to appoint a permanent board. The advertising process for new board members of state-owned companies closed on September 8, and candidates are undergoing a vetting process. In the meantime, I have asked interim chairperson of Eskom’s board, Zethemba Khoza, to ensure that all internal disciplinary procedures relating to allegations of wrongful conduct at the utility are concluded prior to the special general meeting,” Brown said.